A note on Euroyen and domestic yen interest rates

Abstract

This study examines interest rate transmission between the London Euroyen market and the Japanese domestic CD market. The results, which span 1984 through the beginning of 1993, indicate that these two interest rate series are cointegrated. In the earlier part of the sample period, causality is strongest from the Euroyen market to domestic yen interest rates. However, strong feedback effects are observed in both directions in more recent years. The use of both vector autoregressive modeling and cointegration analysis for forecasting is supported over random walk models.